The merger of law firms in Vietnam
for the sake of survival - Why not?
Lawyer Nguyen Huu Phuoc - Phuoc & Partners
he period from mid-2005 to
T 2007, saw an auspicious boom
for the legal services sector,
particularly, for Vietnamese
law limited liability companies and law
During the period from
mid-2005 to 2007, an firms. During this period, an
unprecedented injection of foreign
unprecedented injection
investment capital in conjunction with
of foreign investment Vietnam’s spectacular yearly economic
capital in conjunction growth of over 8 percent plus
with Vietnam’s continuous governmental tax
spectacular yearly exemption incentives and reductions
economic growth of over with respect to legal advice services
8% plus continuous facilitated the strong development of
the legal services sector.
governmental tax
exemption incentives and Also in this time, several directors of
reductions with respect to many newly established law companies
legal advice services and law firms decided to make their
facilitated the strong own way by resigning from well-
development of the legal known domestic Vietnamese law
services sector. companies and firms or foreign law
firms in Vietnam. On the whole, most
of them were riding the crest of the
wave of imbalanced supply and
demand for specialized legal services:
high demand in contrast to low supply.
As such, already established
LEGAL – TAX - TRANSLATION – ACCOUNTING
Vietnamese law companies, firms, and
foreign law firm branches were unable
to satisfy the continuous consumer
demand in Vietnam despite increased
working hours and expanded company
recruitment efforts. In addition, most of
these companies competed for newer
and more spacious offices that were
more suitable for specialized legal
services in more centralized areas; in
recruiting more lawyers, experts of
legal advice and experienced logistics
team for the purpose of development.
For instance, a few Vietnamese law
firms took the risk of leasing an office
of 400m2 in Class-A buildings in Hanoi
and Saigon while concurrently hiring a
100-strong team of lawyers and staff.
Despite the massive expansion of this
sector, the preponderance of any
divisions or separation in lieu of
acquisition or merger lingered over this
time because most firms actively
sought their particular interests in light
of the unrelenting opportunity to do
business.
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H
owever, since the end of inflation rates in early 2008 put operations and development is often
2007, a number of Vietnamese law companies and a tall order because their properties
Vietnamese law firms under the added strain of are of little value (only office
companies and firms began to fall soaring costs (mostly, fixed ones) computers and electronic devices
on hard times. First, like most such as stationery, travel, phone, and cars). In addition, Vietnamese
business sectors, the contraction of communication costs, and law companies and firms stay away
the global economy that has particularly, labor costs. from trust bank loans due to their
occurred since this time has forced complicated procedures and high
foreign as well as local client to As expected, when costs rise, interest rates and service fees.
tighten their belts towards suppliers enterprises usually try to cut costs
of legal advice, thus resulting in a and/or heighten turnover. However, In early 2009, extra pieces of sad
considerable decrease in legal most costs of Vietnamese law news began to emerge for players in
service fees. This in turn has companies and firms are fixed costs, the legal services sector.
enhanced competitiveness among that are difficult to adjust
firms; clients tended to pay per adequately or quickly, if at all. Case √ First, in accordance with WTO
resultant case rather than by hours in point, firms are typically locked commitments of Vietnam, such
as a general rule in the legal sector; into lease contracts for at least two sector will no longer be entitled
at the same time, the drop in client years and salaries for lawyers and to tax incentives and the Law on
turnout left Vietnamese law staff apply for the length of their Corporate Income Tax, valid
companies in dire straits. Second, respective labor contracts. If you are since January 1, 2009,
office leases have galloped from US able to ease labor costs, costs for thereupon removes them from
$25/m2 for Class A facilities and US staff training are also easier to cut. the list of investment incentives.
$17/m2 for Class B facilities to a Having said all that, firms should As such, the fact that the
number that is three-fold of that at not take staff-downsizing lightly corporate income tax rate
present. Further exacerbating this because, in general, it takes you reduced to 25% rather than the
situation, building owners began to several years to train a good lawyer; previous rate of 28% 1 is of little
make difficult demands for if you keep staff discharged from comfort.
consumers of such office space work face to face with present
including: higher deposits difficulties, you will find no one in √ Second, the Law on Personal
(equivalent to six-months rent); your need, or you will pay new staff Income Tax, valid since January
prepaid rent (for a period of 6 to 12 a salary a salary you can’t 1, 2009, stipulates investment
months); a signed long-term lease realistically afford For Vietnamese capital of a lawyer will be
contract (of 3 to 5 years); as well as law companies and firms, securing levied with a tax rate of 5% on
increases in office rent upon lease necessary loans from domestic interests from dividends, and
contract expiry. Third, high credit banks/institutions to maintain revenue after corporate income
tax with respect to Vietnamese
law companies 2 .
The Law on Corporate Income Tax, valid since January
1, 2009 thereupon removes them from the list of √ Third, health insurance costs for
investment incentives and investment capital of a lawyer lawyers and staff will rise from
will be levied with a tax rate of 5% on interests from 3% (2% for employers and 1%
dividends, and revenue after corporate income tax with 1
respect to Vietnamese law companies. Article 10 of the new Law on Corporate
Income Tax
2
Article 3.3 of the new Law on Personal
Income Tax

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 for employees) to 6% of
monthly salary/wages as of July
01, 2009 (where employers pay
2/3 and employees pay 1/3) 3 .
√ Fourth, new unemployment
insurance fees now stand at 2%
(1% of monthly salary/wages
for employees and 1% of
monthly salary/wages fund for
employers), which went into
effect January 1, 2009 4 .
√ Fifth, until early 2010, the rate
of social insurance fees will rise
from the present rate of 20%
(5% of monthly salary/wages
for employees and 15% of
monthly salary/wages fund for
employers) to 22% (6% of
monthly salary/wages for
employees and 16% of monthly
salary/wages fund for
5 try to increase reasonable and
employers) . Because most
Vietnamese law companies pay
their staff net salaries (after-
taxes), such new augmentations
must be incurred by them and
regarded as a noticeable,
financial burden.
Thus, what must Vietnamese law
companies and firms do to survive
the span of economic difficulties?
According to IMF projections as
well as Vietnam’s forecast, the 2009
global economy landscape appears
bleak. Of course, cost reduction will
3
Article 13 of the new Law on Health
Insurance
4
Article 102 of the new Law on Social
Insurance
5 law companies and firms, merging
Article 91 and 92 of the new Law on
Social Insurance
be prioritized by Vietnamese law
companies and firms while turnover
augmentation is unlikely to be met
by client service fees; but as
aforesaid, the costs of Vietnamese
law companies and firms are mostly
fixed ones that cannot be quickly
dealt with. A few Vietnamese law
companies and firms, that are
fortunate to terminate office lease
contracts upon their expiry, will
have to make haste in trying to
move to cheaper villas to cut costs
regardless of whether this resigns
them to spending a rather big sum
of money on re-designing villas to
the motif of a law office. Others
will try to lessen costs for
entertainment, staff training, and
socialization and travel. Some will
try to get more clients by
diversifying their legal services to
block drops in turnover. Some will
legitimate costs to reduce taxable
incomes (for example, increasing
the percentage of property
amortization as regulated, strictly
supervising purchases of goods or
services with fully legal invoices
and documents.) However, these are
only short-term measures, and in
general, most Vietnamese law
companies and firms are on the
brink of needing a rescue from this
economic plight.
In the current economic landscape,
self-preservation is still the best
way to survive rather than relying
on governmental aid (for instance,
extended time of paying personal
income tax and exemption and
reduction of corporate income tax in
2009, subsidized interest rate of
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loans towards small and medium
enterprises.) Therefore, the potential
merger of Vietnamese law
companies and firms has recently
become a hot topic after the release
of a few articles on this matter in
2006. To this point, there have been
a variety of either direct or indirect
contacts or dialogues on mergers
among Vietnamese law companies
and firms. In light of this, some
major mergers among firms in
Vietnam have become a distinct
possibility in the not-so-distant
future.
From 2009, some rates of
insurance payment shall
be increased:
√ health insurance
payment will rise to
6% of monthly
salary/wages (as of
July 01, 2009);
√ unemployment
insurance payment
shall be 2% of
monthly salary/wages
(as of January 01,
2009); and
√ Social insurance
payment shall be 22%
of monthly
salary/wages (from
the year of 2010).
Merger in the present economic
landscape mainly aims at survival
rather development. For Vietnamese
will help them save not less than 2/5
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of operation costs thanks to
considerable diminution of fixed
costs. In addition, this will
contribute to turnover increase by
diversifying the types of legal
services to clients. For example, an
increase in legal services with
respect to labor dismissal, corporate
restructuring, acquisition and
merger, and dispute resolutions can
offset a fall in the services of
corporate establishment or legal
advice to enterprises; therefore, the
merger of two Vietnamese law
companies or firms with different
specializations of legal service will
result in an improvement in
turnover through the augmentation
in services.
Is merger feasible for the time
being? Such question is in need of
an answer; it is only a matter of
time if the global economy
landscape, in general, and
Vietnam’s economy, in particular,
remains in its current gloomy state.
Furthermore, this rides on whether
Vietnamese law companies and
firms have been interested in the to-
be-or-not-to-be matter. Merger for
surviving the current economic
plight and then developing together
with tokens of rebounding, why
not? What good for thought!

Merger will help Vietnamese law companies and firms:

√ Save not less than 2/5 of operation costs thanks to

considerable diminution of fixed costs;

√ Contribute to turnover increase by diversifying the types of

legal services to clients; and

√ Reduce pressure on finance and cash.

Contact us:
Ho Chi Minh City Ha Noi Da Nang
6th Floor Capital Place Building,
2nd Floor, Suite 11, 63 Ly Thai To Street 318 Dien Bien Phu Street,
No. 6 Thai Van Lung Street Chinh Gian Ward, Thanh Khe District,
Hoan Kiem District, Ha Noi City
District 1, Ho Chi Minh City a Nang City
Tel: +84 (4) 39344 984
Tel: + 84 3 8 235895 Tel.: +84 511 3649 822
Fax: +84 (4) 39344 301
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Email: info@phuoc-partners..com
Email: info@phuoc-partners..com Email: info@phuoc-partners..com

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